Beijing plans three-tier data strategy to avoid US surges

China is setting up a system to filter Chinese companies listed in the United States into groups based on the sensitivity of the data they hold, in a possible concession from Beijing to try to prevent US regulators from targeting hundreds of groups to delete the list.

The system is designed to get some Chinese companies to comply with US rules that require state-owned companies to allow regulators to audit their audit records, according to four people familiar with the situation.

Two people said that Chinese companies listed in the United States would fall into three broad categories. The groups will be companies with non-sensitive data, those with sensitive data, and others with “confidential” data that will have to be crossed out.

One person said Beijing was discussing the possibility of companies in the “sensitive data” category restructuring their operations to comply, including outsourcing information to a third party.

The category system will be the second major concession Beijing is offering to remove barriers that allow the United States to have full access to audits. In April it is Changing a decade-old rule that restricted the data sharing practices of third-party companies.

The timeline, which is under debate and subject to change, comes after months of stalled negotiations between Beijing and Washington over a U.S. requirement for Chinese companies and their accountants to make available or remove business records. detailed audit by 2024.

A mass delisting could be a major step toward economic decoupling between the United States and China and threaten $1.3 trillion in shareholder value. About 260 of China’s biggest companies, including technology group Alibaba, fast-food company Yum China and social media site Weibo, could be delisted from New York stock exchanges if they fail to meet the requirements.

The China Securities Regulatory Commission, the largest securities watchdog in Beijing, had no comment.

Beijing has traditionally objected to Chinese companies providing data to foreign regulators on national security grounds.

But under the tiered arrangement, “low-risk” data companies could make their audit data available to the Public Company Accounting and Oversight Board, two people said. The low-risk category will likely include retailers and restaurant chains.

The head of a major Hong Kong-based investment firm said, referring to the taxi group, that: He was fined over a billion dollars by Beijing last week for cybersecurity flaws.

U.S. officials are skeptical of Chinese companies’ compliance with the full transparency standards required by the Foreign Company Accountability Act, the 2020 law that required Chinese and Hong Kong companies to open their audit files.

Although there are ongoing and fruitful discussions between US and Chinese authorities. . . “There are still significant issues and time is running out,” YJ Fischer, director of the SEC’s Office of International Affairs, said in a speech in May.

The agreement to grant access to audit records “will only be the beginning,” Fisher said. PCAOB officials must also travel to China and audit any Chinese issuer listed in the United States.

“I don’t know how we’re going to settle this,” the investment firm’s manager said. He added that Beijing and Washington were using the control dispute for “political gains” and that relations were the worst they had been in 40 years.

“As an investor, I hope both sides are practical enough.”

The PCAOB said in a statement that it should have “full access to the audit records of any company it chooses to inspect or investigate – no loopholes, no exceptions.”